Making Cents: Not the time to ease up on fiscal restraint

John P. Napolitano

Tuesday

Nov 30, 2010 at 12:01 AMNov 30, 2010 at 9:15 PM

The Federal Reserve just released its latest forecast for the economy on issues like unemployment, economic growth and inflation. Its opinion: A full recovery may still be years away. What this means to you is that you must stay focused on present conditions in your financial life and not be overly optimistic about improved earnings from employment or great returns on your investments.

The Federal Reserve just released its latest forecast for the economy on issues like unemployment, economic growth and inflation. Its opinion: A full recovery may still be years away. What this means to you is that you must stay focused on present conditions in your financial life and not be overly optimistic about improved earnings from employment or great returns on your investments.

If you have a job, be grateful. The government forecast calls for unemployment only to get as low as 6.9 percent to 7.4 percent by 2013. That doesn't bode well for those who are unemployed. And remember, while the government reports unemployment still near 10 percent, that doesn't count the thousands who have stopped looking for work. Some estimates peg the actual percentage of people out of work at upward of 17 percent.

This means that interest rates are likely to stay low for longer than many may have expected. A lower rate environment is good for some, not good for others. If you are a borrower, lower rates may be beneficial if you are in a position to take advantage of them. Unfortunately, credit is still fairly tight, making this opportunity available only to those with a high credit score.

If you are a saver, you're wishing that there was a way to get a bit more yield for your safe money. And for the next year or more, that is likely to stay on your wish list. So you'll need to either be grateful you are protected from principal losses or expand your horizons beyond bank deposits.

A low inflation environment is generally good for all of us. Be aware that even a low rate of inflation will reduce your purchasing power over a long period of time. As some costs rise, such as oil and gold, others decrease, such as housing and technology. The net has been pretty good for the past decade, and the Fed is now saying the lower inflation may continue for at least a few more years.

I don't think any of this bodes well for real estate markets. Demand is lackluster, supply is overwhelming, and you need a great credit score with a hefty down payment to qualify for a great rate. Outside of a few pockets of strength in certain neighborhoods or towns, this is not the time to count on significant appreciation of your real estate.

And if you are a potential buyer, what's the rush? With low rates and an oversupply of homes, it seems like you can spend the time to find the house you want.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at jnap@uswealthcompanies.com.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.